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Friday, April 29, 2011

Detroit Publishing Co. Hands Up 1910 "Jersey Shore, Hands up on the beach at Atlantic City"

Ilargi: There appears to be a huge gap between how Americans see the US economy, and how economists do. Indeed, there is such a widening chasm between the two that one could be inclined to think they can't both be taken seriously at the same time.

An April 20-23 Gallup poll, released April 28, indicates that a full 71%(!) of Americans see the economy as either slowing (16%), in a recession (26%), or even in a depression (29%). Only 27% think the economy is growing.

Gallup compares the numbers to those of February and September of 2008, and concludes that today more people think the economy is growing, but that seems a Pyrrhic victory, since the differences are not that great when you look at numbers of people who picked depression or recession: In February 2008, it was 45%, in September 2008 69% and today 55%. In other words, those who feel the economy is in real trouble, not just a little bit, is still well over 50%.

And we have to see that in the light of the fact that many, if not most, would have trouble defining what exactly a recession or depression is, and would therefore be more likely to just fill in "slowing". Hence, a vast majority of 71%, well over two-thirds of Americans, think the economy is in the doghouse. But most of all, we need to realize that since 2008, over the past 2,5 to 3 years, untold trillions of dollars have been spent, in taxpayer money, to allegedly "save" and/or "lift" the economy. And this is the result.....

If US party politics is your thing (it definitely ain't mine), Gallup also dove into differences there. And even though 42% of Democrats see a growing economy, vs only 14% of Republicans, what strikes me is that even among Democrats, a 56% majority "voted" either slowing, recession or depression, against a giant 86% of Republicans. Somewhat curiously, the richest echelon is almost on par with the average American, with 69% saying either slowing, recession or depression.

Now contrast all of this, for a moment, with this week’s Federal Open Market Committee (FOMC) statement that "the economic recovery is proceeding at a moderate pace" (already one notch down from last month's "firmer footing").

Then contrast it with an Associated Press survey of 42 "leading" economists (which was done prior to this week's GDP numbers). And allow me some "live" commentary.

The American economy is now strong enough to withstand Middle East turmoil and the Japanese nuclear crisis. Only a big rise in the price of oil could stop it now. Those are the findings of an Associated Press survey of leading economists, who are increasingly confident in a recovery that is nearly two years old.

They expect the economy to grow faster every quarter this year. In part, that's because the economists think Americans will spend more freely in the coming months.

Ilargi: Sorry, can't help you there. Here's what Lucia Mutikani for Reuters said about yesterday's GDP report:

Growth in the first quarter was curtailed by a sharp pull back in consumer spending.

Ilargi: Clear enough, methinks. Back to the AP survey:

Higher stock prices have made people wealthier. [..]

Ilargi: Well, actually, as we saw earlier this month in this Bloomberg graph below, stock prices make less and less people wealthier. According to Gallup, just 54% of Americans own stocks, the lowest percentage since at least 1999. Ironically, 69% of Americans still claim now is a good time to buy a home. Joe and Jane Main Street still have a ways to go towards enlightenment. They clearly see a problem, but by no means all of it.

Less trading and higher prices. The free market laws of supply and demand are broken and violated on a routine basis. And maybe the average American has clued into that more than anyone wishes to acknowledge. Maybe Joe and Jane can still smell a rat even if they can't see it.

If you still need proof, here, again, is a graph that Mike Maloney dug up at the St. Louis Fed website, and that makes it very obvious how markets are manipulated:

Consumer (Individual) Loans at All Commercial Banks - 6 years

Ilargi: My comment then: Apparently, sometime in early 2010 American consumers, virtually overnight, decided to take out 50% more in loans than they already owed. And the banks let them. Right..

Between the two graphs, I think it should be abundantly clear that Joe and Jane do not profit from the market manipulation their taxes are spent on. Yes, higher stock prices have made some people wealthier, that much is obvious. But that's only because the markets they are traded in are being heavily manipulated, using Joe and Jane's money against their own best interest, and even against America's very own real economy.

UPDATE: I received a number of reactions to this graph. Mike 'Mish' Shedlock writes that the spike is due to student loans being reclassified as consumer loans, while another mail points me to this post from Barry Ritholtz, which states:

In the case above, the ghost in the credit machine was a FASB related change in the way accounting now gets reported, thanks to FASB 166/167. The Fed announced, in Notes released on April 9, certain accounting changes to this data set. With regard to the specific series in question, the Fed wrote:

The AP survey collected the views of 42 private, corporate and academic economists on a range of indicators. Among their forecasts:

• The economy will grow at a 3.2 percent annual rate in this quarter, then 3.4 percent from July through September and 3.5 percent from October to December. That would be stronger than the expected 2.2 percent pace for the first quarter.

Ilargi: As we saw, the first quarter just came in at a lowered 1.8%. We would need one helluvan improvement to get to 3.2% annualized. Keep dreaming.

• Employers will hire more. The unemployment rate, now 8.8 percent, will drop to 8.4 percent by December. That's more optimistic than the economists' view three months ago, when they predicted unemployment would be 8.9 percent by year's end. The economists think employers will create 2.1 million jobs this year, more than double last year's 940,000.

Ilargi: Initial jobless claims were up Thursday, at 429.000. Then again, what could ironically help lower the unemployment rate is the fact that One Million Americans Exhausted All Jobless Benefits in the Past Year. Very conveniently, official statistics now don’t have to count -most of- them anymore as unemployed. According to an April 19 Gallup poll, US unemployment fell to 9.6%, but underemployment rose to 19.2%. Between the underemployed and the 99'ers, we're looking at a truckload and a half full of people who have an awfully hard time paying their daily bills. Added together, that's easily and at the very least 25% of working-age Americans. Include their dependents, and you're eerily close to your run-of-the-mill third world country.

• Average hourly pay, which has not increased fast enough over the past year to keep up with inflation, will rise. A majority of economists think pay will consistently exceed inflation beginning next year at the latest.

Ilargi: We get into dream territory again. Wonder what these guys base their predictions on. Seeing that for instance McDonald's just hired 62,000 people, a rise in average wages seems highly unlikely. Very highly. The trend towards lower paid work, if any is available, continues unabated. I’ll flip your burger if you’ll flip mine. As for benefits, you're pulling my finger, right?

• Consumer spending will grow 2.8 percent this year. That's a bit weaker than economists predicted three months ago. But it's more than last year's 1.7 percent increase, when many Americans were still feeling the effects of the recession. The downturn wiped out $7 trillion in wealth and eliminated 7.5 million jobs.

Ilargi: Yeah, sure. We already saw above that it was the very "sharp pull back in consumer spending" that dragged down GDP.

And really, with un(der)employment where it is, and with home prices down another 1.1% in February, we get back to what remains the one biggest undisputed truth we’ve often cited here about the American economy (even if some pundits and experts blame the weather for the recent "disappointing" numbers): With un(der)employment numbers as high as they presently are, and with a housing market still mired in the doldrums and sinking further, an economic recovery in America is simply not possible.

Unemployment will need to go down to 5-6%, and underemployment to 10% or so, because if they don't, you lose far too large a segment of your consumer potential to lay any kind of foundation under that recovery, let alone a solid one.

As for housing, the problem is even way more complicated. Real estate prices will need to fall more, and a lot, to make homes affordable again in a time of greatly reduced credit availability, but that same fall in prices will hammer Americans' wealth and consumer spending like there's no tomorrow, which will reduce available credit even more, which will further lower real estate prices and so on and so forth. There is no way to avoid going through this process, called deleveraging. None.

Relatively high home prices mean lower sales figures, since very few people can afford to buy a home, even if they can get credit (think for a moment of those 26,000 new McDonald's employees). Still, by the same token, relatively lower home prices mean large scale wealth destruction, even if that wealth is by now mainly virtual, and therefore a strong downward pull on consumer spending.

When in the past I have talked about zombie money, it was mostly in connection with large financial institutions and the toxic assets they are allowed to hold in their vaults at 100 cents on the dollar, thanks to FASB 157 fantasy -or zombie- accounting.

But of course zombie money exists on a much wider -though not necessarily larger- scale. Everyone who today holds assets, such as real estate, or stocks, or yes, even gold and silver, will at some point need to acknowledge that the perceived value of what they hold has been hugely propped up by the government's refusal to mark assets to market.

That is as true for your assets as it is for those held by the banks. The difference is that these banks have received trillions of dollars of your money in order to make the zombie accounting look at least somewhat credible for a while, while the same government that handed them your funds, has left you to your own means. That is to say, your own means minus what it gave away to the banks.

That part you will need to subtract from whatever it is you think you still own, because it's gone and it will never come back. The banks were bankrupt before and they still are; their losses are far greater than the trillions handed to them, which of necessity serve only to perpetuate an illusion for a limited period of time. There would need to be spectacular economic growth for years into the future in order to just make a dent into everyone’s debt, be they institutions, governments or individuals.

Such growth will not and can not materialize for a long long time if ever. The American economy can't even stand still, let alone grow, without a "healthy" housing market; it's just that big a part of the economy, a home is the biggest asset purchase of their lives for most Americans. But we have entered a time where prospective buyers can't afford to buy at present prices, and owners can't afford to lose the difference between what they wish their home were worth and what the market will soon tell them it is.

The AP survey piece says: "The downturn wiped out $7 trillion in wealth and eliminated 7.5 million jobs." I think those are lowball estimates even today. What's more, I don't see any possibility to prevent another $7 trillion in wealth and another 7.5 million jobs being eliminated.

We saw this week that a Greek default, or debt restructuring, or pick your favorite term, will force Greek and/or other European banks to mark at least part of their assets to market. That Greek default is inevitable. The same is true for Ireland, Portugal and Spain, though perhaps not all of them this year. The amount of debt for these countries held by the main European banks, like Deutsche, Crédit Agricole, Société Générale, Santander, the Britsh banks, is huge. Once a forced mark-to-market of assets starts, entire asset classes will be repriced around the globe, way below where their alleged value now stands. And your assets too will follow that downward move.

Which means that Americans are right to be very somber about their economy, and that the economists AP surveyed are either incompetent or insincere.

More than half of Americans say the U.S. economy is in a recession or a depression despite official data that show a moderate recovery, according to a poll released on Thursday. The April 20-23 Gallup survey of 1,013 U.S. adults found that only 27 percent said the economy is growing. Twenty-nine percent said the economy is in a depression and 26 percent said it is in a recession, with another 16 percent saying it is "slowing down," Gallup said. The poll findings have a 4 percentage point margin of error, according to Gallup.

The health of the U.S. economy is expected to be a major issue as President Barack Obama, a Democrat, seeks re-election in 2012. The government reported on Thursday that U.S. economic growth slowed more than expected to 1.8 percent in the first quarter of the year, as soaring food and gasoline prices drained consumer spending power.

A slowdown in first-quarter growth was acknowledged on Wednesday by the Federal Reserve, which described the U.S. economic recovery as proceeding at a "moderate pace." That was a step back from the "firmer footing" that Fed officials cited for the recovery in March. The Gallup poll found that Democrats are the most likely to say the economy is growing. Forty-three percent of Democrats said the economy is in a recession or depression, 13 percent said it is slowing down and 42 percent said it is growing.

Sixty-eight percent of Republicans and supporters of the conservative Tea Party movement said the economy is in a recession or a depression. Fourteen percent of Republicans and 13 percent of Tea Party supporters said the economy is growing. Fifty-seven percent of independent voters -- a crucial segment of the electorate for Obama's re-election bid -- said the economy is in a recession or depression and 24 percent said it is growing

The American economy is now strong enough to withstand Middle East turmoil and the Japanese nuclear crisis. Only a big rise in the price of oil could stop it now. Those are the findings of an Associated Press survey of leading economists, who are increasingly confident in a recovery that is nearly two years old. They expect the economy to grow faster every quarter this year.

In part, that's because the economists think Americans will spend more freely in the coming months. Higher stock prices have made people wealthier. And a cut in the Social Security payroll tax is giving most households an extra $1,000 to $2,000 this year. American exports and corporate spending, which have helped drive the recovery, are also expected to remain strong, according to the quarterly AP Economy Survey.

The one factor that could make a second recession a possibility would be a jump in oil prices to $150 a barrel, economists say. Oil trades at about $112 a barrel now. The record high, set in the summer of 2008, is about $147 a barrel. "The economy is regaining some of its lost muscle and now seems to have a much thicker skin than it did six months or a year ago, and that's helping it handle various negative forces," said Lynn Reaser, a board member of the National Association for Business Economics.

While oil has risen almost $40 a barrel since Labor Day, analysts think it would take something extraordinary to drive the price all the way to a new record — either supply disruptions because of a new front in the Mideast unrest or action by the Federal Reserve that brings down the value of the dollar. Economists think gas prices, now averaging $3.87 a gallon and rising every day, will stabilize by summer and drop to about $3.50 by fall. Rising gas prices are taking up much of what Americans are pocketing from the Social Security tax cut.

Still, Americans are spending more on furniture, cars and electronics. Apple Inc.'s earnings, for example, nearly doubled in its most recent quarter, helped by record sales of iPhones and the popular iPad. And businesses are buying more computers and other equipment. Last week, Intel Corp., the world's biggest semiconductor company, said its quarterly profit rose 29 percent. Corporate demand for PCs and the backroom hardware that powers computer data centers fueled orders for Intel chips. And Honeywell said its quarterly profit jumped 40 percent because of more demand for its industrial products.

The AP survey collected the views of 42 private, corporate and academic economists on a range of indicators. Among their forecasts:

The economy will grow at a 3.2 percent annual rate in this quarter, then 3.4 percent from July through September and 3.5 percent from October to December. That would be stronger than the expected 2.2 percent pace for the first quarter.

Employers will hire more. The unemployment rate, now 8.8 percent, will drop to 8.4 percent by December. That's more optimistic than the economists' view three months ago, when they predicted unemployment would be 8.9 percent by year's end. The economists think employers will create 2.1 million jobs this year, more than double last year's 940,000.

Average hourly pay, which has not increased fast enough over the past year to keep up with inflation, will rise. A majority of economists think pay will consistently exceed inflation beginning next year at the latest.

Consumer spending will grow 2.8 percent this year. That's a bit weaker than economists predicted three months ago. But it's more than last year's 1.7 percent increase, when many Americans were still feeling the effects of the recession. The downturn wiped out $7 trillion in wealth and eliminated 7.5 million jobs.

Inflation will come in at 2.8 percent this year, higher than predicted three months ago, mainly because of costlier energy and food. But 2.8 percent would still be lower than the average 3.2 percent inflation over the past 30 years. Last year, it was 1.5 percent.

Excluding food and energy prices, which tend to fluctuate, so-called core inflation is expected to amount to 1.7 percent this year. That's within the range the Federal Reserve considers healthy. Last year, core prices rose only 0.8 percent, the lowest since government records were first kept in 1958. Some Fed officials worried last year about the prospect of deflation — a destructive drop in prices. Those fears have largely faded as the economy has strengthened.

"We had a big jump in oil prices, but I think weather was the bigger factor" last quarter, said David Wyss, chief economist at Standard & Poor's. "So we'll return to stable growth through the rest of the year." The brighter forecasts come as U.S. companies are exporting more planes, industrial machinery, coal and other goods. IBM got a boost in its most recent quarter, for example, from brisk sales of hardware. Sales were especially robust in China and Russia.

All that has lifted confidence that the recovery will endure and even strengthen. Tax cuts and the Fed's $600 billion program to buy federal bonds have helped fortify the rebound, economists say. Many economists say the Fed's bond purchases helped keep interest rates low, encouraged spending and fueled a stock rally. Solid demand from customers at home and overseas has invigorated U.S. factories. Factory production grew more than four times as fast as the overall economy likely did in the January-to-March quarter. The government will estimate first-quarter growth on Thursday.

Still, depressed home prices and sales in many parts of the country are weighing on the economy. The Japan earthquake has slowed shipments of some manufacturing supplies, but it won't be enough to do real damage to the U.S. economic recovery. Apple says it sees no insurmountable supply shortage resulting from the disaster. IBM was hardly affected. Another factor in the growing optimism: Hiring is up. Companies have added more than 200,000 jobs for two straight months — the first time that's happened in five years. Larger stock portfolios have emboldened consumers, too. The S&P 500 index has surged 28 percent the past eight months.

US economic growth braked sharply in the first quarter as higher food and gasoline prices dampened consumer spending, and sent a broad measure of inflation rising at its fastest pace in 2-1/2 years.

Another report on Thursday showed a surprise rise in the number of Americans claiming unemployment benefits last week, which could cast a shadow on expectations for a significant pick-up in output in the second quarter. Growth in gross domestic product, a measure of all goods and services produced within US borders, slowed to a 1.8% annual rate after a 3.1% fourth-quarter pace, the Commerce Department said.

Economists had expected a 2 percent growth pace. Output was also restrained by harsh winter weather, rising imports as well as the weakest government spending in more than 27 years. "The biggest factor was weather. It hurt consumption and construction. Energy also hurt consumption as well. Higher gasoline prices took a bigger bite out of people's budget," said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Connecticut.

Initial claims for state unemployment benefits jumped 25,000 to a seasonally adjusted 429,000, the Labor Department said. Economists had expected claims to slip to 392,000. US government debt prices rose after the data, while stock index futures added to losses. The dollar extended losses against the yen and the euro.

The Federal Reserve on Wednesday acknowledged the slowdown in first-quarter growth, describing the recovery as proceeding at a "moderate pace", a slight step back from a statement in March when it said the economy was on a "firmer footing". It trimmed its growth estimate for 2011 to between 3.1-3.3% from a 3.4-3.9% January projection.

The US central bank signalled it was in no rush to start withdrawing the massive monetary stimulus it has lent the economy. It confirmed plans to complete its $600 billion bond buying program in June. "Coming in at 1.8, to get to where Fed's forecast is, you're going to need some robust growth," said Bob Andres, chief investment strategist and economist at Merion Wealth Partners in Berwyn, Pennsylvania. 'In my mind, the Fed's forecast and the Street's forecast are more than likely a little too optimistic."

Growth in the first quarter was curtailed by a sharp pull back in consumer spending, which expanded at a rate of 2.7% after a strong 4% gain in the final three months of 2010. Rising commodity prices meant the consumers , which drive about 70% of US economic activity, had less money to spend on other items. The report also underscored the pain that strong food and gasoline prices are inflicting on households.

A broader measure of inflation, the personal consumption expenditures price index, rose at a 3.8% rate, its fastest pace since the third quarter of 2008, after increasing 1.7% in the fourth quarter. The core index, which excludes food and energy costs, accelerated to a 1.5% rate, the fastest since the fourth quarter of 2009, from 0.4% in the fourth quarter.

The core gauge is closely watched by Fed officials, who would like it at around 2%. Still, economists expect consumer spending to trend higher in the second quarter, mostly on the belief gasoline prices will not rise much above $4 a gallon on average.

Roughly 1 million people in the U.S. were unable to find work after exhausting their unemployment benefits over the past year, Labor Department data released Thursday suggest. Economists said the back-of-the-envelope calculation is yet another sign that the labor market remains weak.

About 8.2 million idled workers were receiving unemployment benefits as of the week ended April 9, the Labor Department said in its weekly jobless claims report. This compares with about 10.5 million individuals at the same time last year, resulting in a decline of roughly 2.3 million people. The federal government estimates that the economy created 1.3 million jobs during the 12 months ended in March.

“That leaves, roughly speaking, about 1 million people who have exhausted their unemployment benefits and have very likely not yet found a job,” said Joshua Shapiro, chief U.S. economist at MFR Inc. in New York.

But Nicholas Tenev of Barclays Capital said a precise figure is hard to calculate. He estimated the labor force has shrunk by 638,000 since March of last year, largely because of a demographic shift as baby boomers retire. “While we don’t have an estimate of our own of how many people have exhausted all their benefits and are unable to find work, 1 million sounds high to me,” Tenev said.

Home prices in 20 major U.S. cities fell 1.1% in February, the seventh straight monthly decline, according to the Case-Shiller home-price index released Tuesday by Standard & Poor’s. Prices rose in one of 20 cities in February on a monthly basis. Over the past year, only Washington, D.C., has seen prices advance. Prices fell 3.3% year over year in February, compared with a 3.1% year-over-year drop in January.

The 20-city index is slightly above its April 2009 trough, meaning that home prices have almost completely retreated from the gains they posted from May 2009 through June 2010. Falling below the April 2009 level would put housing in a double-dip downturn. “There is very little, if any, good news about housing. Prices continue to weaken; trends in sales and construction are disappointing,” said David Blitzer, chairman of the index committee at Standard & Poor’s.

Housing has been plagued by issues that have created a Gordian knot for the sector. On the supply side, an oversupply of distressed properties is pushing prices down. There are also worries of a so-called “shadow inventory” of homes that sellers and banks want to list, but are waiting for the right moment to do so. On the demand side, many consumers are still having difficulty qualifying for mortgages even though rates are low.

Economists have said that a healthy labor market could help cure these ills, but the labor market has been struggling as well. Some economists believe that sales may pick up in the spring if buyers become convinced that mortgage rates are likely to rise, given talk of a Federal Reserve exit from its ultra-easy monetary policy. The S&P/Case-Shiller index is based on a three-month moving average of home prices. So the February data reflect price data for December, January and February. This makes the index less volatile than other government housing-price data.

The value of assets in U.S. state retirement systems fell by $641.3 billion to $2 trillion in 2009, the U.S. Census Bureau said in a report on Thursday that showed the deep damage done to pension funds by the financial crisis. The 24 percent drop followed a loss of $152.2 billion the previous year. The declines came from a $485 billion decrease in earnings on investments in 2009, after a nearly $440 billion loss in 2008, according to the U.S. Census.

Public pension funds are backed by contributions from employees and employers and by earnings from investments, which provide more than half of revenue. This makes retirement systems, especially ones as large as California's, a force in the markets. The value of the all state funds' assets peaked at $3.2 trillion in 2007 then fell by more than a quarter to $2.8 trillion in 2008, when the financial crisis took hold, according to the Federal Reserve.

Last week, two public pension fund associations said the assets held by retirement systems rose to $2.93 trillion in 2010, indicating the worst of the crisis may be over. While retirement systems can pay for pensions to current retirees, they are short more than $600 billion for future benefit payments, a report from the Pew Center on the States said earlier this week.

Those in the $2.9 trillion U.S. municipal bond market are worried that the large obligations could affect the credit-worthiness of many states. On Wednesday, two of the three major rating agencies raised flags about the fiscal condition of New Jersey, citing the state's $31 billion public pension shortfall.

Japan's factory production and consumer spending both suffered record falls in March as the earthquake, tsunami and nuclear disasters sent the country's halting economic recovery into reverse.

The government said on Thursday that industrial production had plunged 15.3% from February after the 11 March earthquake and tsunami devastated Japan's industrial north-east, crippled a nuclear power station that continues to leak radiation and caused widespread power shortages. Factory production had been expected to fall sharply as a result, but the drop was worse than the forecast of an 11.4% decline in a Kyodo News survey of analysts.

The disasters, which killed about 25,000 people, destroyed many factories, causing a severe shortage of parts and components for manufacturers across the Japanese economy but especially for carmakers. Manufacturers including Toyota and Sony were forced to suspend production amid the supply crunch and power outages. Transport equipment recorded the sharpest production drop – a 46.4% decline – underscoring the north-east region's integral role in supplying Japan's auto industry with parts, graphics chips and other high-end components.

The Japan Automobile Manufacturers Association said vehicle production fell 57.3% in March from a year earlier to 404,039 vehicles. The ministry of economy, trade and industry said the country's industrial production would recover "gradually", forecasting a 3.9% improvement in April and a 2.7% rise in May. But Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo, said the government's forecast was probably overly optimistic. Even if it held true, it would be months before production reached its already depressed pre-disaster level, he said, adding: "This is a frustrating outlook."

Ministry officials said the March decline in the country's index of output at factories and mines was the greatest since record-keeping began in 1953. The previous largest decline was in February 2009, when the global financial crisis that had started a few months earlier dragged production down 8.6%. Prime minister Naoto Kan has said he hopes disaster-recovery spending will help lift Japan out of its 20-year economic decline. China last year overtook Japan to become the world's second-biggest economy.

The government proposed a special $50bn (£30bn) budget last week to help finance rebuilding efforts, which officials said would likely be only the first instalment of reconstruction funding. Japan's central bank, meanwhile, said it was keeping its key interest rate unchanged at zero to 0.1% in an attempt to support economic growth after the disasters. The Bank of Japan has pumped billions of dollars into the financial system to stabilise the economy since the quake.

Consumers not spendingIn another report on Thursday, the government's statistics bureau announced that consumer spending had also seen a record decline in March, falling 8.5% from a year earlier. The previous sharpest decline in the numbers, which have been tracked since 1963, was a 7.2% dip in February 1974, soon after the 1970s oil shock helped trigger a worldwide stock market crash.

Goldman Sachs global economics analyst Norihiko Baba said in a report that a decline of 4% to 5% had been expected, since spending in March 2010 was especially robust due to tax breaks and discounts available at the time on energy-saving cars and appliances. The much larger drop implied that the disasters were having a "strong impact" on spending, Baba said.

Kan has urged Japanese consumers to open their wallets to help spur the economy, stressing that the upcoming Golden Week holidays will be a particularly good opportunity to spend. But Schulz said consumers were unlikely to be in a spending mood amid the out-of-service elevators, dimmed lights and other power-saving reminders of the nuclear energy crisis set off by the disasters. "Households in Japan, after this shock and seeing that the crisis is ongoing, will simply not go out and buy a new car or anything this year," he said.

Separately, the government said the nation's unemployment rate was unchanged in March from February at 4.6%, but the survey excluded the three prefectures hardest hit by the disasters. The seasonally adjusted figure was better than Kyodo News's average market forecast of 4.8%. It was the ninth consecutive month of steady improvements in the nation's employment picture.

Schulz said the surprisingly upbeat jobs numbers were probably linked to employers' need to keep workers on their payrolls to help restore damaged supply lines. But he predicted a sharp downturn in those figures, as the drop-off in consumer spending translates into fewer jobs at hotels, restaurants and shops in Japan's massive service sector. The government also reported that consumer prices declined for the 25th straight month. The key consumer prices index fell 0.1% as deflation continued to weigh on the economy.

The world's central banks have pumped £3 trillion into the global financial system since the crisis, the equivalent of 8pc of the world economy, according to new analysis by Fathom Consulting. The figures will intensify fears that the extraordinary injection of liquidity is responsible for rising stock markets, rather than any underlying pick-up in corporate health or investor confidence.

Erik Britton, a director at Fathom, compared the development to throwing lighter fuel on a barbecue. The question is, he said, "whether the coals are lit". The warning is the result of the extraordinary measures to prop up the financial system, which have seen central banks resort to strategies such as buying up bonds to keep the flow of money circulating.

Fathom's economists are worried that last year may have marked the high point of the global recovery. "It remains unclear how much of the equity market rally has been 'genuine', rather than simply a 'mopping up' of that extraordinary injection of liquidity," they warned. "As that stimulus is gradually withdrawn, further gains in equity markets will be harder to achieve."

To reach the £3 trillion figure, presented in its calculations as $5 trillion, Fathom measured the liquidity injections made by the world's four major central banks, by tracking how their balance sheets changed in the wake of the crisis.

The analysis of data for the US Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England shows their assets were relatively stable through 2006 up to mid-2007. They then started to climb rapidly as the global financial system began to unravel. The central banks' assets swelled from around $4 trillion at the start of 2006 to just short of $9 trillion by the end of February this year. "The increase in the size of G4 central bank balance sheets since mid-07 has been around $5 trillion to end Feb-11, or 8pc of global GDP," reported Fathom.

The Bank of England was the smallest contributor to the headline figure. So far, it has pumped £200bn into the system through quantitative easing (QE), its programme of buying government bonds to keep the money flowing. The European Central Bank (ECB), which sets monetary policy across the eurozone, emerged as the biggest contributor to the headline figure.

Warning, the stars are aligning, again. Much faster. We’re repeating the run-up to the 2008 meltdown, leading up to the next election. Yes, another crash is coming, unavoidable, just like 2008. Not because our totally dysfunctional government is collapsing into anarchy, thanks to the 261,000 Super-Rich Lobbyists. Not just because our monetary system is run by the Bernanke Printing Press Company. And not just because a soulless conspiracy of Wall Street CEOs cares nothing for democracy and the public interest, only for their stockholders and their year-end bonuses.

Another crash is coming soon because we’re back playing the same speculative games as we did for years prior to the 2008 crash. When we collapse, it will be because America’s leaders never learn the lessons of history. Never. In a BusinessWeek editorial, Peter Coy and Rouben Farzad described the bubbles:

“It’s as if 2008 never happened. Once again the worlds investors are pumping up bubbles that will probably explode in their faces. After the popping of a real estate bubble led to the first global recession since the 1930s, world markets are frothing like shaken Champagne. Pundits claim to have spotted price increases that are unsupported by economic fundamentals in assets ranging from U.S. farmland to Israeli biotech to Australian housing to Chinese cemetery sites. Commodities have soared. Global junk-bond issuance hit a record in the first three months of the year … this is the granddaddy of them all, an almost-encompassing bubble right at the heart of monetary systems.”

Yes, the “granddaddy of all bubbles” will explode right in Fed Chairman Ben Bernanke’s face, a bubble that will then sink like a stiletto deep into the “heart of the monetary systems” across the world, proving something Nassim Taleb said about Bernanke when Obama reappointed him in 2009, “he doesn’t even know he doesn’t understand how things work,” and that his methods make “homeopath and alternative healers look empirical and scientific.”

Warning, same prediction also made 18 months before the 2008 crashNow here’s the fascinating part of that prediction. Today’s new bubble-blowing resembles the four-year run-up to the 2008 crash, even replicates the pre-election timing. Why? First, because Jeremy Grantham, GMO chief, money managers of $100 billion, made virtually the same warning as the Coy-Farzad team 18 months before the 2008 meltdown.

Listen very closely and compare how what Grantham said in July 2007, 18 months before a clueless Henry Paulson and Ben Bernanke stood by and did nothing before the crash in the fall of 2008. Listen, the similarity is so eerie you’d think the two predictions were written by the same guys four years apart, though they weren’t.

Coincidence? Perhaps, but the real problem is that during the 18-month run-up from July 2007 to the 2008 crash, our leaders, Paulson and Bernanke, were misleading everyone: Paulson, “best economy seen in my professional life.” Bernanke, “the subprime loan crisis is contained.” And earlier Greenspan, a myopic Reaganomics-Ayn Rand clone who later recanted, said the problems were just some “regional froth.”

Now listen and compare Jeremy Grantham’s July 2007 prediction with BusinessWeek’s warning:

“The First Truly Global Bubble: From Indian antiquities to modern Chinese art; from land in Panama to Mayfair; from forestry, infrastructure, and the junkiest bonds to mundane blue chips; it’s bubble time. … Everyone, everywhere is reinforcing one another. … The bursting of the bubble will be across all countries and all assets … no similar global event has occurred before.”

Warning, America’s leaders will deny the next crash, won’t be preparedLater in 2009 Grantham also began warning that we had “learned nothing” and were “condemning ourselves to another serious financial crisis in the not too-distant future.” Get it?

America’s leaders in Washington, Wall Street and Corporate America are so predictably irrational, so doomed to repeat history, they cannot hear, see or comprehend the warnings of men like Grantham, who manages $100 billion, a guy who can’t afford to ignore the lessons of history. He’s also understands why humans deny warnings, why we inevitably make stupid mistakes over and over.

Yes, Grantham was already pointing out how we “learned nothing” from 2008, how we were destined to repeat the same, even bigger, mistakes. Pointing to a key chart, Grantham’s “favorite example of a last hurrah after the first leg of the 1929 crash,” he saw obvious similarities between 1929-30 and today, warning that we’re in for a long, long period of recovery, like the 1930s Great Depression:

“After the sharp decline in the fall of 1929, the S&P 500 rallied 46% from its low in November to the rally high of April 12, 1930, then, of course, fell by over 80%.”

Then last year Grantham updated his warnings, drawing an analogy to the biblical warnings of Joseph: “The idea behind seven lean years is that it is unrealistic to expect to overcome the several problems facing most developed countries, including the U.S., in fewer than several years.” So here we are, closing in the elections of 2012, with 18 months to go. The countdown clock’s ticking louder, while Newt, Paul Ryan and The Donald are sucking the air out of the media cycle, making certain that once again we’ll miss the coming perfect storm in the financial markets … just as Paulson, Bernanke and so many others did in 2008.

For eight centuries, political leaders in denial, never learn till it’s too lateThis has been going on for 800 years: Why do national leaders fail over and over to learn the lessons of history? Grantham said it best in a Barron’s interview a couple years ago:

“Why is it that several dozen people saw this crisis coming for years? I described it as being like watching a train wreck in very slow motion. It seemed so inevitable and so merciless, and yet the bosses of Merrill Lynch and Citi and even Treasury Secretary Paulson and Fed Chairman Bernanke, none of them seemed to see it coming.”

Our nation’s leaders are in denial, want happy talk, bull markets, can’t even see the crash coming, even though the warnings were everywhere for years. Why the denial? Grantham hit the nail on the head: Our leaders are “management types who focus on what they are doing this quarter or this annual budget and are somewhat impatient.”

But what we need is “more people with a historical perspective who are more thoughtful and more right-brained.” Instead America ends “up with an army of left-brained immediate doers. So it’s more or less guaranteed that every time we get an outlying, obscure event that has never happened before in history, they are always going to miss it. And the three or four dozen odd characters screaming about it are always going to be ignored.”

7 reasons leaders always fail to see catastrophes, till too latePlease listen closely: For emphasis, let’s repeat Grantham’s warnings so you can see why a guy who is making $100 billion bets on the future of America’s economy, the dollar, our securities and commodity markets should be listened to. His psychological insights into the minds of America’s leaders deserve everyone’s attention. So whatever you do, commit these seven key points to memory as a guide to your thinking and financial decision-making in the next 18 months:

Many, many experts did predict and warn of the 2008 meltdown years in advance.

As a result, it is virtually certain that America’s leaders will focus on upbeat, good news and always miss the next meltdown because warnings of a coming catastrophe are ignored.

Warnings from the few with a long-term perspective will always be dismissed during every investment cycle and every future recession/recovery cycle. Always. It’s in their DNA, trapped in their brain cells and demanded by their followers.

If you are a typical left-brain Wall Street or corporate executive, it’s virtually certain that you will miscalculate the timing/impact of the next meltdown, the next big collapse that’s off your radar. As a result, your company’s assets are at risk of suffering massive losses that are “predictable, not random.” But because you’re in denial, you will not deem it necessary to take steps to protect your assets.

If you’re a right-brain thinker, your longer-term historical perspective will give you a clear advantage in preparing for the next crash and the depression that follows.

Folks, there’s really nothing you can do to stop the inevitable crash that is coming possibly just before the presidential election in 2012. Historical cycles have led to the inevitable collapse of all economic systems for 800 years, say economists Carmen Reinhart and Ken Rogoff in their classic, “This Time It’s Different: Eight Centuries of Financial Folly.”

The facts of history are irrefutable, inevitable and brutal. And nothing can change the trajectory of the cycle. In fact, the end can accelerate fast, in decades, says Niall Ferguson, author of “Ascent of Money: A Financial History of the World” and “Colossus: The Rise and Fall of The American Empire:”

“For centuries, historians, political theorists, anthropologists and the public have tended to think about the political process in seasonal, cyclical terms,” their ending long, drawn out. “But what if history is not cyclical and slow-moving but arrhythmic.” What if history is “at times almost stationary but also capable of accelerating suddenly, like a sports car? What if collapse does not arrive over a number of centuries but comes suddenly, like a thief in the night?”

We are in such a period. Will you be caught off guard, unprepared? Like in 2008?

Hedge fund Paulson & Co. paid as little as 9 cents on the dollar for some of its $4 billion in Lehman Brothers Holdings Inc. senior bonds, according to a court filing. A bondholders group including New York-based Paulson and the California Public Employees’ Retirement System made the filing in response to a U.S. bankruptcy judge’s order that the group disclose details about its members. The group is fighting to control defunct Lehman’s $61 billion liquidation with a payout plan that competes with Lehman’s own proposal.

Paulson paid 9 cents on the dollar for $5.1 million of Lehman’s senior bonds on Dec. 1, 2008, according to the filing. Paulson paid 34 cents to 35 cents on the dollar for the bonds when Lehman filed bankruptcy on Sept. 15, 2008. Calpers paid 86 cents to $1.04 on the dollar for $90.1 million of Lehman’s senior bonds between July 2006 and December 2007, according to the filing, which was made on April 22.

Paulson and other senior bondholders are being offered 21.4 cents on the dollar in Lehman’s liquidation plan, and as much as 24.5 cents in the Paulson-Calpers proposal. Under a disclosure provision called Rule 2019, the judge could have denied the group a voice in court if they hadn’t complied with his order. “We took into consideration our colloquy with the judge regarding transparency,” Gerard Uzzi, a lawyer for the group at White & Case LLP, said in a phone interview. “We hope that other creditors will respond by making similar disclosures.”

The bondholders group was formed around May 2009 to share the costs of participating in Lehman’s bankruptcy, according to the filing. Its steering committee comprises Paulson, Canyon Capital Advisors LLC, Fir Tree Inc. and Taconic Capital Advisors LP. The bondholders own $16.1 billion in face value of Lehman’s senior bonds, they said in the filing.

Calpers and other institutional investors don’t pay any fees for belonging to the group, according to the filing. Calpers is the largest U.S. public pension fund. Another member of the group, Pacific Investment Management Co., runs the world’s largest bond fund, and group member Canyon Partners LLC, based in Los Angeles, is a hedge fund.

Once the fourth-largest investment bank, Lehman filed the biggest bankruptcy in U.S. history in September 2008, listing $613 billion in debts.

Europe's bailed-out economies saw their borrowing costs hit fresh records on rising concerns they will not be able to pay their debts. Greece, Ireland and Portugal enjoyed no respite as investors grew still more reluctant to hold their debt, taking the yields, or returns, offered by the governments' bonds to new highs.

The yield on two-year Greek debt passed 25pc for the first time, while yields on 10-year debt climbed further over 15pc. Portuguese and Irish 10-year debt yields also hit records, trading around 10pc.

The crisis surrounding the finances of the euro bloc's weaker nations flared up this week after German officials made more noise about a potential restructuring of sovereign debt. This would represent an effective default, as governments would cut the interest they pay to creditors or extend their loans.

Investors seem convinced that some kind of debt restructuring by Greece, at least, is inevitable. Data released this week showed Greece's deficit - the shortfall in its annual budget - was bigger than expected at 10.5pc of GDP, despite its harsh austerity programme to slash its debt. European Central Bank officials have warned a restructure could prove more disastrous than the collapse of Lehman Brothers in 2008, which precipitated the financial crisis.

Japanese consumer electronics giant Panasonic Corp will slash 40,000 jobs over the next two years in a bid to pare costs and keep up with ever-tougher competition from Asian rivals, a source said on Thursday. Releasing its annual results, Panasonic declined to comment on the job cuts, which represent more than 10 percent of its 380,000 strong workforce, but set aside 110 billion yen ($1.3 billion) in restructuring expenses for the year to March 2012. President Fumio Ohtsubo is scheduled to speak to the media about the company's future direction at 0810 GMT.

"The figure is huge, but so is the company, and for an old-fashioned one like Panasonic, this is a big move," said Toru Hashizume, chief investment officer at Stats Investment Management in Tokyo. "In the mid-term, the stock is priced low, it is around the level it was after Lehman, even though the current conditions are more favorable for Panasonic," he added, referring to the collapse of Lehman Brothers in the global financial crisis. The source who spoke to Reuters had direct knowledge of the matter, but cannot be identified because the plan has not been made public.

Once unrivalled, Japan's consumer electronic firms are facing increasing competition from cheaper Korean and Chinese producers in particular. Panasonic said its operating profit for the fourth quarter ended March fell by almost a third to 41 billion yen. It did not give a forecast for the current year because of uncertainties following last month's devastating earthquake and tsunami in Japan.

Operating profit was 305.3 billion yen ($3.7 billion) for the year just ended, falling short of its own earlier forecast of 310 billion yen. The figure was slightly better than a consensus of 297 billion yen, based on Thomson Reuters SmartEstimate, which places greater weight on recent estimates by highly rated analysts. The SmartEstimate for the current year to March 2012 is for a profit fall to 260 billion yen as the company struggles with production woes and weak domestic demand following the earthquake. Panasonic said without the impact of the quake, its forecast for this year would have been for an operating profit of 310 billion yen.

Cutting OverlapPanasonic is seeking to shift its focus to environmental and energy-related businesses such as rechargeable batteries in order to duck competition from Samsung Electronics, LG Electronics and others in consumer technology. As part of that strategy, it announced last year it would make Panasonic Electric Works and Sanyo Electric Co wholly owned units, absorbing a combined 160,000 workers, said the Nikkei newspaper, which first reported the job cuts. Panasonic is now seeking to shed staff in overlapping businesses, particularly abroad, it added.

The units make a wide range of products including rechargeable batteries, factory robots, electronic components, lighting and solar panels. Shares of the electronics conglomerate closed up 2.4 percent in Tokyo, outpacing a 1.6 percent gain in the benchmark Nikkei 225 index.

Unlike their western counterparts, Japanese companies tend to avoid dumping large numbers of workers, particularly at home. The latest staff cuts overshadow past Panasonic restructurings including 26,000 workers shed after the information-technology bubble burst, and about 15,000 in the aftermath of the Lehman shock, the paper said. It is equal to about all the jobs lost in the United States in March according to data released by Challenger, Gray & Christmas, Inc, an outplacement firm that compiles monthly U.S. employment numbers. ($1 = 82.220 Japanese Yen)

McDonald’s Corp., the world’s biggest restaurant chain, said it hired 24 percent more people than planned during an employment event this month. McDonald’s and its franchisees hired 62,000 people in the U.S. after receiving more than one million applications, the Oak Brook, Illinois-based company said today in an e-mailed statement. Previously, it said it planned to hire 50,000.

The April 19 national hiring day was the company’s first, said Danya Proud, a McDonald’s spokeswoman. She declined to disclose how many of the jobs were full- versus part-time. McDonald’s employed 400,000 workers worldwide at company-owned stores at the end of 2010, according to a company filing.

The number of applications for unemployment benefits in the U.S. rose last week, a sign that progress in the labor market may be fading. Jobless claims increased by 25,000 to 429,000 in the week ended April 23, the most in three months, according to data from the Labor Department in Washington today.

Earlier this month, McDonald’s said sales at stores open at least 13 months climbed 2.9 percent in the U.S. after it attracted more diners with items such as beverages and the Chipotle BBQ Bacon Angus burger. The fast-food chain has about 14,000 stores in the U.S. and more than 18,000 abroad. About 80 percent of all McDonald’s stores are franchised. McDonald’s rose 6 cents to $77.93 at 2:16 p.m. in New York Stock Exchange composite trading. The shares have gained 10 percent over the past 12 months, before today.

The Silver market is in a bubble stage right now. No one really knows how long this will last, whether Silver goes up another $5, 10, 20 doesn`t really matter for investors who are buying the physical metal in the form of coins because when the bubble ends they are going to be sitting on a depreciating asset. Sure, long term, Silver will be worth more sometime in the future compared with the average price of the last 30 years in the next 30 year segment. But Silver prices have risen far too fast in to short of a time for this to be sustainable longer term.

Silver's QE2 Juicing CycleFor example, wasn`t Silver just $18 an ounce last August 2010? Guess what also corresponded to this same time period, you guessed it QE2 (See Chart). What happens to Silver prices when QE2 ends? Physical Silver investors have been tricked into buying the physical because of what the speculators are doing in the futures market.

Hot Money - Easy Come, Easy Go I have news for you, physical buyers, those are not buy and hold investors, and they can go just as quickly as they came. Remember, the futures market is determined by fund flows, and right now there has been a lot of money to be made in a hot commodity market. But markets and especially commodities are very cyclical in nature, and money flows into these instruments during parts of investing cycles, and out during others.

Physcial Buyers Holding The BagHowever, the physical buyers of coins are not looking to flip these investments; they are going to hang onto the physical coins for 5 years or more. Guess what, you have seen how fast Silver can rise, and you probably know that it can fall just as fast. But the one element that physical buyers of Silver are missing is that they are buying at the top of the market at many standard deviations above the average price of the past 30 years.

Miami Condos & SilverThis is a recipe for disaster, and no different than buying Miami condos at the height of the housing bubble. If you’re flipping the condo, and are lucky enough to not get stuck holding the bag is one thing, but to have bought a Miami condo just before prices fell off a cliff is another matter entirely.

Whenever prices of any asset go up this high in such a short time span, it is a bubble, and unsustainable. And no, I am not calling for a top in Silver prices, but what I am saying is that the Silver market is in a bubble, and unsustainable unless a couple of doomsday scenarios happen. Which is always a clue for your investing outcomes, if you need a doomsday scenario to have a long term profitable trade that you’re going to hold for five years, then you really are putting on a low probability trade.

Bought at The Top of The MarketThe bigger problem with buying at or near the top of the Physical Silver market is that the US is in an unprecedented low interest rate environment. What happens when interest rates go back to their historical averages? They were just 5.25% less than 5 years ago, what happens in the next 5 years when interest rates go back up? What do you think is going to happen to the value of your physical Silver coins? They are going to depreciate in a steady but sure fashion.

Worse Than the Housing BubbleIn short, because you bought so much above the 30 year average price for the physical market, your asset will depreciate, and be heavily under water once the next rate tightening cycle begins. And we are not talking about a little under water. Your under water will make Miami condos look good by comparison.

You think there was a housing bubble? Compare your asset to a house, and look at the precipitous drop to those assets. You cannot even live in your depreciating asset. My advice to any purchasers of the Physical metal is to sell while prices are still going up, before the futures market busts.

Remember The Past BubblesDon`t get tricked by Wall Street momentum traders who will bid up any kind of asset if they think they can profit from it. Remember, how hot housing stocks were? Remember those Nasdaq Dot Com stocks, where every day another new internet company was doing an IPO even though they had no proven revenue streams? Does that sports streaming venture that Mark Cuban sold yahoo come to mind?

Bubbles exist in markets; traders take advantage of them, while bag holders pay the price. I bet yahoo wishes they could undo that trade, Time Warner wishes they could have a “do-over” on that AOL partnership.

US Is No Greece or JapanYes, there are a couple of scenarios where holding the physical Silver might be profitable 5 years from now. If the US goes into default, a very unlikely scenario, given our incredible resources, and the fact that when we get serious about cutting the budget, with even a modicum of discipline we will be fine. We spend like drunken sailors, and that can be fixed.

The real problem is if you can`t produce revenue, and the US has only scratched the surface of producing technological innovation, which means we have a lot of revenue generating capabilities. A lot of countries cannot say the same, the US isn`t Greece. The US doesn`t have an aging demographics problem like Japan either.

The US has a spending problem, if worse comes to worse the US will just have to cut back on military spending, and with how far we are ahead of every other country in terms of military spending and expertise, there is a lot of budget tightening room to spare in that area and many other areas. When push comes to shove the US will get their fiscal house in order.

Dollar Devaluation Will Be LimitedNow, on to the other commonly referred to doomsday reason for holding physical Silver. The age old Dollar devaluation argument. Well, I have news for you Silver bugs, all currencies around the world are devalued with time. But the US Dollar is not going to be any more devalued than it was last year when QE1 ended, and the Dollar Index was in the 80s.

US Is No Zimbabwe EitherThe currency fluctuates depending upon several factors, but Silver investors are taking a very low period in the dollar, and extrapolating this level of detioration pace forward for the next 5 years. It doesn`t work that way, unless you are Zimbabwe. The US may be a lot of things, but it isn`t Zimbabwe, and you shouldn`t base investment decisions comparing the most successful Business Country in the world to a country the size of Zimbabwe.

Carry Trade UnwindRemember, the US Dollar is temporarily being used by the "Risk On" Carry Traders to go long assets, and short the dollar, thus artificially making the dollar weaker than it really is. When they unwind this trade guess what the US Dollar will start rising again. Remember last summer, what do you think will happen to Silver prices when Gold starts selling off because the US Dollar is getting stronger?

Yes, the US Dollar will lose its value to some degree, this is why a coke used to cost 35 cents at one time, and now it is over a dollar. But this is a normal rate of depreciation over several decades. And not the rate of depreciation being currently priced into the physical Silver market.

The 30 year average price of Silver versus the current price of Silver

Investment fund flows now versus a portion of these same funds being applied to different markets, say real estate in 5 years

The US Fed versus Global Monetary Policies: What happens when the US starts tightening, and China and India are done tightening? The monetary policy gap starts to narrow.

These high Silver prices will bring a lot of the “precious metal” online; will there be a glut of physical Silver on the market once prices start to drop?

Do assets that have this meteoric rise in price? Is it usually sustainable longer term?

Do our financial markets have a long and storied history of unsustainable prices, i.e., bubbles?

Are there more attractive markets for value at this point then buying Physical Silver from a valuation standpoint?

There's Times To BuyIt makes no rational investing sense to buy Physical Silver during a low rate environment, because the investor will be stuck with a well under water investment in a 5% rate environment. The time to buy Physical Silver was when the Fed Funds Rate was 5.25%, and the time to sell Physical Silver is now during the last vestiges of an equivalent Zero Fed Funds Rate.

QE2 Induced Irrational InvestingThis irrational investing in the Silver Market, based upon concerns regarding the long term stability and security of the US Dollar, is one of the unintended consequences of the QE2 Initiative. And much of this irrational investing in the Silver Market will reverse itself once QE2 is finished, and the US Dollar strengthens.

Silver & Subprime - No Difference To Wall StreetI am not trying to rain on anybody`s Silver parade. And who knows where the top is in Silver. But don`t get caught up in the hysteria of another Wall Street trade. Remember, the Silver market is just another trade for Wall Street. They don`t have any special affinity for this shiny metal, any more than they had for subprime mortgages, and when the writing was on the wall, they packaged these assets up, and pawned them off to other bag holders.

The Silver market will be no different, when they are done with this trade, they will run from this market faster than they came. And if you bought physical Silver based upon the meteoric price rise occurring in the futures market, you may end up having an asset that declines in value by more than half what you originally bought it for. So you can buy a Silver American Eagle for over $50 today, and have it be worth less than $20 in the future.

This is the epitome of a bad investment. You’re supposed to buy low and sell high, not the other way around. Remember, you are an investor not a trader if you’re buying the Physical Silver Coins. Thus you have to be a “Value Investor”. And I am here to tell you there are no ‘Values’ in the Physical Silver Market, or any other Silver Market for that matter.

President George W. Bush made a shocking assertion back in 2005 when he was pushing to privatize Social Security. “A lot of people in America think there is a trust,” he said, “that we take your money in payroll taxes and then we hold it for you and then when you retire, we give it back to you. But that’s not the way it works. There is no trust fund — just IOUs ….”

Actually, working Americans have paid so much in Social Security payroll taxes during the past three decades that they have built up a $2.6 trillion surplus in the account. That money should make the system strong enough to cover the current level of benefits for the next 26 years. In the interim, a prudent government could restructure the program for the rest of the century, perhaps by means-testing benefits and rejiggering contributions.

But, unfortunately, Bush was right. In 1983, Congress and the Reagan administration adjusted Social Security taxes and benefits to put the program on an even keel that began to build up a huge surplus for investment. But Congress decided to “borrow” the surplus instead of investing. They’ve been using it to help pay for things that have nothing to do with Social Security, things the political establishment and tax-averse Americans wanted but didn’t want to pay for: invasions, education, highway repairs and so on. And, without giving any thought to paying the surplus money back, the federal government has been trading it for special Treasury bonds that politicians used to assure us were safe in a lockbox.

Just IOUs. In a lockbox.

They are, however, IOUs that are supposed to be backed by the full faith and credit of the United States. So this year, as the Social Security Administration is beginning to fall short of what it needs to pay retiree benefits, it is cashing in $45 billion of the bonds. And because the country is upside down in debt, it has to borrow the $45 billion from China or somewhere else to make older people’s ends meet. Those maneuvers will presumably continue until 2037 unless the system is adjusted in the meantime or Uncle Sam’s credit line runs out.

It would be nice if we could drag the past five presidents and all members of Congress since 1983 into court and squeeze the $2.6 trillion out of them. But we can’t. We elected them, and they did all the borrowing for us. Given the lack of attention we self-governing Americans paid over all those years, we would be wise not to get too huffy about the situation. According to a recent poll conducted for Investor’s Business Daily, only 40 percent of us realize that the Social Security trust fund is composed of IOUs.

So the politicians who engineered this government malpractice get away with telling two radically different stories, both of which are sort of correct. Republicans say the Social Security program has to borrow money to stay afloat, making it a key part of the national debt crisis. Democrats say Social Security is fully funded with a huge surplus, and so doesn’t contribute to the debt crisis.

Senate Majority Leader Harry Reid said on “Meet the Press” the other day that talk about a Social Security financing crisis is “something that is perpetuated by people who don’t like government.” Perhaps. But that group of people could expand as Congress tackles the debt crisis, everybody gets a peek in the lockbox, and folks in Washington decide whether our Social Security tax payments really have been borrowed, or stolen.

Barclays said it had taken steps to wind down early a controversial off balance sheet vehicle run by former employees of its investment bank as it reported a 9pc fall in first-quarter profits to £1.66bn. The bank said it would be bringing £10.2bn of toxic assets back on to its books as the lender moved to accelerate the closure of Protium. Protium, which was set up in 2009 to hold £12.6bn of troubled real estate assets, has been dogged by controversey since its inception and had been looked at by regulators over concerns it could be used to hide losses.

Chris Lucas, finance director at Barclays, said the bank's decision to renegotiate the terms of the Protium loan that will mean the transaction will be wound up within three years rather than the 10 originally planned had not been driven by external pressures. Under the terms of the new deal, C12, the external fund manager set up by former Barclays employees to run the assets, will receive an £80m payment for agreeing the shortening of the management contract. In addition, Barclays will invest several million pounds in a new third party fund managed by C12 called Helix.

The new arrangement will mean Barclays will once again have to account for movements in the value of the Protium assets on a mark-to-market basis. Mr Lucas said the chane would have "no major impact" on the bank's profits. The fall in profits - analysts had predicted pre-tax profits for the bank of £1.8bn - was led in part by a 15pc drop in pre-tax profits at Barclays Capital. The decrease was largely the result of a 22pc fall in fixed income, currencies and commodities division's earnings, which were £2.1bn for the quarter.

An increase in equities and investment banking advisory profits partially offset the fall and Mr Lucas said it demonstrated the advantage to the bank of its diversified business lines. Profits from the UK business were up 21pc at £288m, while the bank's European business made a loss for the first three months of the year of £59m, largely on the back of continued losses in Spain.

Barclays strengthened its Core Tier 1 capital ratio to 11pc, up 0.2 percentage points. Regulators have demanded lenders hold extra capital to prevent a repeat of the financial crisis. Unveiling his first set of results, chief executive Bob Diamond said: “We have made a good start in 2011 in a challenging external environment." The first quarter is typically the strongest period for investment banking and can set the tone for the year. As well as tough comparisons from a year ago, activity has been hampered by North African political turmoil, Japan's earthquake and economic wobbles in the eurozone.

Later today, the bank is set to have to defend the pay of top bankers at the annual meeting in London as investors balk at proposals to increase Mr Diamond's salary and launch a potentially lucrative bonus system for high flyers. Shareholders will be asked to approve the 2010 pay report, which included a £27m total pay package for the chief executive. Mr Diamond, who took over from John Varley in January, was awarded a £6.5m bonus, a conditional share award of about £6.75m and £13.8m in shares that vested from previous incentive plans. With his promotion, Mr Diamond's salary was raised to £1.35m - about 23pc more than Mr Varley's salary.

In 2010 Barclays paid out £670m in shareholder dividends, and about £11.9bn in staff costs, including bonuses. The bank also faces an attack from leading investor group, Pensions & Investment Research Consultants (Pirc). It has warned that Barclays' method of accounting for its bonuses is "deficient" and is distorting investors' views of bank's profits. It claims Barclays has used a "quirk" in the accounting rules to delay the costs of the UK bonus tax in a move that may have flattered its 2010 profits by as much as £1.4bn.

Barclays will be targeted during its annual meeting on Wednesday by anti-poverty campaigners accusing it of playing a leading role in driving up food prices on global commodities markets.

Barclays Capital, the investment banking arm of the high street bank, is the UK's biggest player in food commodity trading, and one of the top three banking players globally, according to a new analysis for the World Development Movement. Along with Goldman Sachs and Morgan Stanley, BarCap has pioneered new kinds of financial products that have enabled pension funds and other investors traditionally barred from commodities exchanges to bet on food prices.

Deborah Doane, director of the World Development Movement (WDM), accused Barclays of making excessive profits at the expense of millions in poor countries. "First, it was sub-prime mortgages, now it's food commodities," she said. "The lack of transparency in these markets bears worrying resemblance to the behaviour that led to the 2008 financial crash. Like any irrational asset bubble, the investors pile their money in for short-term profits, in spite of the consequences."

The WDM report estimates that BarCap may have made as much as £340m in 2010 from its activities in food speculation. Precise figures are not known because much of the speculation takes the form of over-the-counter derivatives – trades entered privately between banks and clients. Banks do not publish a breakdown of revenues within divisions, so the WDM figure for Barclays is extrapolated from other measures published by the company, such as money at risk.

Barclays declined to comment in detail on the WDM report but said in a statement: "Barclays Capital conducts a variety of investment banking activities to help our clients across asset classes and geographies." It added that it acted as "an intermediary for our clients globally" rather than trading on its own behalf.

Barclays has already found its business ethics questioned this year, with UK Uncut, the campaign group, targeting branches over its tax avoidance activities. Soaring food prices have further highlighted the role of investment banks and hedge funds in commodity price spikes. The UN Food and Agriculture Organisation's (FAO's) food price index has reached record levels in recent months, and steep rises in the price of staples helped trigger the revolutions in Tunisia and Egypt.

While a range of factors, from climate change to demand for biofuels, have contributed to food price rises, financial speculation in agricultural commodity derivatives is believed by many, including the FAO, to have magnified volatility. Others, including the banks and the OECD, argue speculation is not a significant factor.

Financial activity in the commodities markets has seen explosive growth in the last few years. According to data from the UN special rapporteur on the right to food, Olivier De Schutter, investment in commodity index funds rose from $13bn (£7.9bn) in 2003 to $317bn by 2008. While there are no definitive figures on how those index funds break down, it is estimated that their holdings in agricultural commodity markets rose from about $3bn to over $55bn over that period.

Producers and processors of physical goods have long used commodities exchanges to hedge against risks such as bad harvests. But much of the recent growth has been through new "structured" products invented by banks and sold to investors.

After intense lobbying, banks won deregulation of commodities markets in the US in 2000, allowing them to develop these new products. Goldman Sachs pioneered commodity index funds which offer investors a chance to track changes in a spread of commodity prices. Barclays, meanwhile, invented "collateralised commodity obligations" in 2004, which resemble the synthetic collateralised debt obligations (CDOs) of credit crisis notoriety, except that they are backed by commodity trigger swaps instead o f credit default swaps. BarCap also has a leading position in commodity index investments.

There has been concern that the commodities boom represents a new risk to financial stability. The global financial watchdog, the Financial Stability Board, has warned that it has all the hallmarks of a bubble waiting to burst.

Michael Masters, the hedge fund manager who gave testimony to the US Senate on speculation and food prices in 2008, agrees that the growth is potentially dangerous. "Financial speculation now accounts for more than two thirds of the market, and only about 30% is physical hedgers," he said. "The percentages have flipped in that period. When billions of dollars of capital is being put to work in small markets like this, it amplifies price rises and if financial flows amplify prices of food stuffs and energy, it's not like real estate and stocks – when food prices double, people starve."

Soviet efforts to contain the Chernobyl nuclear disaster a quarter of a century ago were far better than Japan's "slow-motion" response to the disaster at Fukushima, a leading member of the 1986 recovery effort said. In a rare interview on the eve of the 25th anniversary of Chernobyl on Monday, Col-Gen Nikolai Antoshkin said he was shocked at how poorly Japan had coped with its own nuclear disaster. "Right at the start when there was not yet a big leak of radiation they (the Japanese) wasted time. And then they acted in slow-motion," he said.

The Soviets had evacuated 44,600 people within two and a half hours and put them up in "normal comfortable conditions" on the same day, he recalled. "Look at advanced Japan," he said. "People are housed in stadiums and are lying about on the floors of sports halls in unhygienic conditions."

Gen Antoshkin said he thought the Japanese were simply unable to cope on their own. "It is clear that they do not have enough strength or means. They need to ask the international community for help," he said. "I think the Japanese catastrophe is already more serious than Chernobyl. The main thing is that they do not allow it to become three, four or five times more serious."

Gen Antoshkin, 68, was in charge of Soviet pilots who flew over Chernobyl's stricken fourth reactor, dropping lead, sand and clay from the air to try to contain radiation. In the ten days after the accident on 26 April 1986, his pilots flew 4,000 such flights, exposing themselves to huge radiation doses. Gen Antoshkin insisted that his men, many of whom later died from cancer, knew the risks they were taking.

"Of course the pilots knew (they were getting high doses) and the consequences," he said. "But the pilots knew that the reactor needed to be covered as quickly as possible. You'd tell the pilot to leave but he'd come back." Radiation levels were so high that they were off the scale, he added, and precautions were as basic as being told to change uniform and have a good wash.

Given the fierce insularity of Japan’s nuclear industry, it was perhaps fitting that an outsider exposed the most serious safety cover-up in the history of Japanese nuclear power. It took place at Fukushima Daiichi, the plant that Japan has been struggling to get under control since last month’s earthquake and tsunami.

In 2000, Kei Sugaoka, a Japanese-American nuclear inspector who had done work for General Electric at Daiichi, told Japan’s main nuclear regulator about a cracked steam dryer that he believed was being concealed. If exposed, the revelations could have forced the operator, Tokyo Electric Power, to do what utilities least want to do: undertake costly repairs. What happened next was an example, critics have since said, of the collusive ties that bind the nation’s nuclear power companies, regulators and politicians.

Despite a new law shielding whistle-blowers, the regulator, the Nuclear and Industrial Safety Agency, divulged Mr. Sugaoka’s identity to Tokyo Electric, effectively blackballing him from the industry. Instead of immediately deploying its own investigators to Daiichi, the agency instructed the company to inspect its own reactors. Regulators allowed the company to keep operating its reactors for the next two years even though, an investigation ultimately revealed, its executives had actually hidden other, far more serious problems, including cracks in the shrouds that cover reactor cores.

Investigators may take months or years to decide to what extent safety problems or weak regulation contributed to the disaster at Daiichi, the worst of its kind since Chernobyl. But as troubles at the plant and fears over radiation continue to rattle the nation, the Japanese are increasingly raising the possibility that a culture of complicity made the plant especially vulnerable to the natural disaster that struck the country on March 11.

Already, many Japanese and Western experts argue that inconsistent, nonexistent or unenforced regulations played a role in the accident — especially the low seawalls that failed to protect the plant against the tsunami and the decision to place backup diesel generators that power the reactors’ cooling system at ground level, which made them highly susceptible to flooding.

A 10-year extension for the oldest of Daiichi’s reactors suggests that the regulatory system was allowed to remain lax by politicians, bureaucrats and industry executives single-mindedly focused on expanding nuclear power. Regulators approved the extension beyond the reactor’s 40-year statutory limit just weeks before the tsunami despite warnings about its safety and subsequent admissions by Tokyo Electric, often called Tepco, that it had failed to carry out proper inspections of critical equipment.

The mild punishment meted out for past safety infractions has reinforced the belief that nuclear power’s main players are more interested in protecting their interests than increasing safety. In 2002, after Tepco’s cover-ups finally became public, its chairman and president resigned, only to be given advisory posts at the company. Other executives were demoted, but later took jobs at companies that do business with Tepco. Still others received tiny pay cuts for their role in the cover-up. And after a temporary shutdown and repairs at Daiichi, Tepco resumed operating the plant.

In a telephone interview from his home in the San Francisco Bay Area, Mr. Sugaoka said, “I support nuclear power, but I want to see complete transparency.”

Revolving DoorIn Japan, the web of connections between the nuclear industry and government officials is now popularly referred to as the “nuclear power village.” The expression connotes the nontransparent, collusive interests that underlie the establishment’s push to increase nuclear power despite the discovery of active fault lines under plants, new projections about the size of tsunamis and a long history of cover-ups of safety problems.

Just as in any Japanese village, the like-minded — nuclear industry officials, bureaucrats, politicians and scientists — have prospered by rewarding one another with construction projects, lucrative positions, and political, financial and regulatory support. The few openly skeptical of nuclear power’s safety become village outcasts, losing out on promotions and backing.

Until recently, it had been considered political suicide to even discuss the need to reform an industry that appeared less concerned with safety than maximizing profits, said Kusuo Oshima, one of the few governing Democratic Party lawmakers who have long been critical of the nuclear industry. “Everyone considered that a taboo, so nobody wanted to touch it,” said Mr. Oshima, adding that he could speak freely because he was backed not by a nuclear-affiliated group, but by Rissho Kosei-Kai, one of Japan’s largest lay Buddhist movements. “It’s all about money,” he added.

At Fukushima Daiichi and elsewhere, critics say that safety problems have stemmed from a common source: a watchdog that is a member of the nuclear power village. Though it is charged with oversight, the Nuclear and Industrial Safety Agency is part of the Ministry of Trade, Economy and Industry, the bureaucracy charged with promoting the use of nuclear power. Over a long career, officials are often transferred repeatedly between oversight and promotion divisions, blurring the lines between supporting and policing the industry.

Influential bureaucrats tend to side with the nuclear industry — and the promotion of it — because of a practice known as amakudari, or descent from heaven. Widely practiced in Japan’s main industries, amakudari allows senior bureaucrats, usually in their 50s, to land cushy jobs at the companies they once oversaw.

According to data compiled by the Communist Party, one of the fiercest critics of the nuclear industry, generations of high-ranking officials from the ministry have landed senior positions at the country’s 10 utilities since Japan’s first nuclear plants were designed in the 1960s. In a pattern reflective of the clear hierarchy in Japan’s ministries and utilities, the ministry’s most senior officials went to work at Tepco, while those of lower ranks ended up at smaller utilities.

At Tepco, from 1959 to 2010, four former top-ranking ministry officials successively served as vice presidents at the company. When one retired from Tepco, his junior from the ministry took over what is known as the ministry’s “reserved seat” of vice president at the company.

In the most recent case, a director general of the ministry’s Natural Resources and Energy Agency, Toru Ishida, left the ministry last year and joined Tepco early this year as an adviser. Prime Minister Naoto Kan’s government initially defended the appointment but reversed itself after the Communist Party publicized the extent of amakudari appointments since the 1960s. Mr. Ishida, who would have normally become vice president later this year, was forced to step down last week.

Kazuhiro Hasegawa, a spokesman for Tepco, denied that it was an amakudari appointment, adding that the company simply hired the best people. The company declined to make an executive available for an interview about the company’s links with bureaucrats and politicians. Lower-ranking officials also end up at similar, though less lucrative, jobs at the countless companies affiliated with the power companies, as well as advisory bodies with close links to the ministry and utilities.

“Because of this collusion, the Nuclear and Industrial Safety Agency ends up becoming a member of the community seeking profits from nuclear power,” said Hidekatsu Yoshii, a Communist Party lawmaker and nuclear engineer who has long followed the nuclear industry. Collusion flows the other way, too, in a lesser-known practice known as amaagari, or ascent to heaven. Because the regulatory panels meant to backstop the Nuclear and Industrial Safety Agency lack full-time technical experts, they depend largely on retired or active engineers from nuclear-industry related companies. They are unlikely to criticize the companies that employ them.

Even academics who challenge the industry may find themselves shunned. As Japan has begun looking into the problems surrounding collusion since March 11, the Japanese news media has highlighted the discrimination faced by academics who raised questions about the safety of nuclear power.

In Japan, research into nuclear power is financed by the government or nuclear power-related companies. Unable to conduct research, skeptics, especially a group of six at Kyoto University, languished for decades as assistant professors. One, Hiroaki Koide, a nuclear reactor expert who has held a position equivalent to assistant professor for 37 years at Kyoto University, said he applied unsuccessfully for research funds when he was younger. “They’re not handed out to outsiders like me,” he said.

In the United States, the Nuclear Regulatory Commission, the main regulatory agency for the nuclear power industry, can choose from a pool of engineers unaffiliated with a utility or manufacturer, including those who learned their trade in the Navy or at research institutes like Brookhaven or Oak Ridge. As a result, the N.R.C. does not rely on the industry itself to develop proposals and rules. In Japan, however, the Nuclear and Industrial Safety Agency lacks the technical firepower to draw up comprehensive regulations and tends to turn to industry experts to provide that expertise.

The agency “has the legal authority to regulate the utilities, but significantly lacks the technical capability to independently evaluate what they propose,” said Satoshi Sato, who has nearly 30 years’ experience working in the nuclear industry in the United States and Japan. “Naturally, the regulators tend to avoid any risk by proposing their own ideas.” Inspections are not rigorous, Mr. Sato said, because agency inspectors are not trained thoroughly, and safety standards are watered down to meet levels that the utilities can financially bear, he and others said.

Dominion in ParliamentThe political establishment, one of the great beneficiaries of the nuclear power industry, has shown little interest in bolstering safety. In fact, critics say, lax oversight serves their interests. Costly renovations get in the way of building new plants, which create construction projects, jobs and generous subsidies to host communities.

The Liberal Democrats, who governed Japan nearly without interruption from 1955 to 2009, have close ties to the management of nuclear-industry-related companies. The Democratic Party, which has governed since, is backed by labor unions, which, in Japan, tend to be close to management. “Both parties are captive to the power companies, and they follow what the power companies want to do,” said Taro Kono, a Liberal Democratic lawmaker with a reputation as a reformer.

Under Japan’s electoral system, in which a significant percentage of legislators is chosen indirectly, parties reward institutional backers with seats in Parliament. In 1998, the Liberal Democrats selected Tokio Kano, a former vice president at Tepco, for one of these seats. Backed by Keidanren — Japan’s biggest business lobby, of which Tepco is one of the biggest members — Mr. Kano served two six-year terms in the upper house of Parliament until 2010. In a move that has raised eyebrows even in a world of cross-fertilizing interests, he has returned to Tepco as an adviser.

While in office, Mr. Kano led a campaign to reshape the country’s energy policy by putting nuclear power at its center. He held leadership positions on energy committees that recommended policies long sought by the nuclear industry, like the use of a fuel called mixed oxide, or mox, in fast-breeder reactors. He also opposed the deregulation of the power industry.

In 1999, Mr. Kano even complained in Parliament that nuclear power was portrayed unfairly in government-endorsed school textbooks. “Everything written about solar energy is positive, but only negative things are written about nuclear power,” he said, according to parliamentary records.

Most important, in 2003, on the strength of Mr. Kano’s leadership, Japan adopted a national basic energy plan calling for the growth of nuclear energy as a way to achieve greater energy independence and to reduce Japan’s emission of greenhouses gases. The plan and subsequent versions mentioned only in broad terms the importance of safety at the nation’s nuclear plants despite the 2002 disclosure of cover-ups at Fukushima Daiichi and a 1999 accident at a plant northeast of Tokyo in which high levels of radiation were spewed into the air.

Mr. Kano’s legislative activities drew criticism even from some members of his own party. “He rewrote everything in favor of the power companies,” Mr. Kono said. In an interview at a Tepco office here, accompanied by a company spokesman, Mr. Kano said he had served in Parliament out of “conviction.” “It’s disgusting to be thought of as a politician who was a company errand boy just because I was supported by a power company and the business community,” Mr. Kano said.

Taking on a LeviathanSo entrenched is the nuclear power village that it easily survived postwar Japan’s biggest political shake-up. When the Democratic Party came to power 20 months ago, it pledged to reform the nuclear industry and strengthen the Nuclear and Industrial Safety Agency. Hearings on reforming the agency were held starting in 2009 at the Ministry of Economy, Trade and Industry, said Yosuke Kondo, a lawmaker of the governing Democratic Party who was the ministry’s deputy minister at the time. But they fizzled out, he said, after a new minister was appointed in September 2010.

The new minister, Akihiro Ohata, was a former engineer at Hitachi’s nuclear division and one of the most influential advocates of nuclear power in the Democratic Party. He had successfully lobbied his party to change its official designation of nuclear power from a “transitional” to “main” source of energy. An aide to Mr. Ohata, who became Minister of Land, Infrastructure, Transport and Tourism in January, said he was unavailable for an interview.

As moves to strengthen oversight were put on the back burner, the new government dusted off the energy plan designed by Mr. Kano, the Tepco adviser and former lawmaker. It added fresh details, including plans to build 14 new reactors by 2030 and raise the share of electricity generated by nuclear power and minor sources of clean energy to 70 percent from 34 percent.

What is more, Japan would make the sale of nuclear reactors and technology the central component of a long-term export strategy to energy-hungry developing nations. A new company, the International Nuclear Energy Development of Japan, was created to do just that. Its shareholders were made up of the country’s nine main nuclear plant operators, three manufacturers of nuclear reactors and the government itself.

The nuclear power village was going global with the new company. The government took a 10 percent stake. Tepco took the biggest, with 20 percent, and one of its top executives was named the company’s first president.

65 comments:

There's a lot of discussion in the mainstream news media in Canada about the massive (total) debt the United States has, but so far I have not seen any discussion of the massive (total) debt we in Canada have, a massive (total) debt that is skyrocketing higher at a very alarming rate as we speak. The politicians and the mainstream news media absolutely refuse to discuss this issue.

{Click on the link at the end of my post to find the links which back up all of the statistics I am using in this post.)

The total Government (Federal, State, and Local), business, and household debt in the United States is 52.6 trillion$

The total Government (Federal, Provincial, and Municipal) business and household debt in Canada is 4.51 trillion$, and it went up an eye-popping 248 billion$ over the last 12 months. To put things into perspective the (Canadian) Federal Government`s program spending in the year 2010 was 245 billion$

Since the United States`s population and gdp are approximately 10 times higher than Canada`s, there is not a lot of difference in the total debt numbers in the USA (52.6 trillion$) and the total debt numbers in Canada (4.51 trillion$), relatively speaking.

The total Government (Federal, Provincial, and Municipal) business and household debt to nominal gdp in Canada is 278%

In the year 2010 the total Government (Federal, Provincial, and Municipal) business and household debt in Canada grew 2.46 times faster than its nominal gdp (economy) did.

Our economy is one big ponzi scheme, and a "day of reckoning" is just around the corner. When it comes, it is not going to be very pretty.

Hi Candace! I've never really figured out online discussion. For me, the core of communicating critical analysis and experience is charity, which requires fully knowing and seeing the value in someone else's statements, which can only be done when spending enough time with someone, which is almost impossible in a public blog--and so I probably can't respond to your comment as well as it needs. But I highly value TAE and its commentators because everyone here is earnestly concerned about what it means to be ethical.

As far as words go, I'd reply that words are archetypes--and seeing through the archetypes is what it means to be human. Pursuing this, I'd also start to talk about how the moon is not what we think it is and words are not what we think they are....all off topic to TAE. What's it mean to see through the archetypes? If I tried to talk about that, Ilargi would kick me all the way to the moon! :-)

McDonald’s Corp., the world’s biggest restaurant chain, said it hired 24 percent more people than planned during an employment event this month. McDonald’s and its franchisees hired 62,000 people in the U.S. after receiving more than one million applications

Just think America.. all of this recent prosperity was bought with $5 trillion in US Gov't borrowing and another $7 trillion or so of Ben's funny money. Just wait till these gravy trains end. As I've always said on my blog, one day soon enough this will end very badly and very suddenly. As to the recent Stoneleigh vs Lira slugfest, I see it as irrelevant.. both extremes of inflation and deflation will lead us all to the same abyss thanks to the magic of credit default swaps combined with excessive bank leverage. If Stoneleigh happens to read this, I also took exception to Guy McPherson's manner and blatant lies. Keep fighting the good fight.

I live in a part of the country that was purely rural when I moved here with my parents in 1945. Dirt roads, no supermarkets. Farming, with some equestrian gentry preserving very large tracts of land.

Since then it has become largely suburban, with a lot of monolithic extremely green lawns.

This spring I notice that the monolithic lawns are the exception. The vast majority of the lawns are filled with dandelions at all stages of bloom and seed. Something has changed drastically in the last year. And, like the sudden silence of the sprawl that happened a couple of years back and continues to this day, it's not all bad.

See the article by Ash http://theautomaticearth.blogspot.com/2011/04/april-10-2011-jumping-treasury-shark.html

Here is what 20 to 1 financial leverage looks like

http://en.wikipedia.org/wiki/File:Palanca-ejemplo.jpg

"Give me a place to stand, and I shall move the earth with a lever" -Archimedes.

Maybe you can make a song/poem that explain what the bankster said/did.

Maybe you can use the song of “If I had a hammer”

http://www.arlo.net/resources/lyrics/hammer-song.shtml

IF I HAD A HAMMER (The Hammer Song)words and music by Lee Hays and Pete Seeger

If I had a hammerI'd hammer in the morningI'd hammer in the eveningAll over this landI'd hammer out dangerI'd hammer out a warningI'd hammer out love between my brothers and my sistersAll over this land

If I had a bellI'd ring it in the morningI'd ring it in the eveningAll over this landI'd ring out dangerI'd ring out a warningI'd ring out love between my brothers and my sistersAll over this land

If I had a songI'd sing it in the morningI'd sing it in the eveningAll over this landI'd sing out dangerI'd sing out a warningI'd sing out love between my brothers and my sistersAll over this land

Well I've got a hammerAnd I've got a bellAnd I've got a song to singAll over this landIt's the hammer of justiceIt's the bell of freedomIt's the song about love between my brothers and my sistersAll over this land

Just reading the " Physical Silver Investors are Being Hoodwinked..." by Dian Chu....I do not share her confidence that the US will not default. Nor do I find assurances in her argument that " the US has incredible resources..." Oh really? Then why the active participation in resource wars?Nor does she include peak everything and how that just might inhibit US capacity for technical innovation as means to balance the budget.Particularly when the production jobs for the mechanical saviours are created outside the US.I do recognize those nasty drones are gaining market share. Not so happy about that particular product though. If that is what it takes to generate prosperity we do need a rethink!The tone of American exceptionalism in her viewpoint is tiresome. Waving the flag, any flag,like a magic wand is not a useful response to " the predicament ".

@NZSummary, I did notice your posting on the legislation limiting class action suits against corporations. Pisses me off that a corporation is a gender free person and I'm not:) Seriously the " Persons " in power are positioning themselves outside/above the law leaving the rest of us restrained by law. Another facet to our predicament.

Regarding the Gallup poll results, I suppose we can take this as confirmation that the brainwashing by the mainstream media isn't working and the people aren't stupid afterall. Of course, it's almost impossible to sleepwalk the economic situation when the realities are as stark as they are. I happen the believe there's a strong correlation between the unraveling economic situation and the level of tripe that's bantered about in the press and the worst things get, the more outrageous the claims about recovery and the so called news generally will become.

So Japan is in slow motion meltdown. Recriticality is ongoing in Unit 2, as the level of Iodine 131 is 20x higher than the initial assessment. Leaks & breaches of containment in possibly all 3 reactors. Ineptitude, callous disregard of radiation science, one prominent Japanese scientist resigned yesterday at the govts handling of the crisis.

Meanwhile they fiddle in the EU, the strategy there is containment. Try & bore the Market with talk of impending restructuring but delay it as long as possible to avoid loss of confidence & hence contagion. Bit tough to do because once the genie is let out of the bottle, the Market will shift targets.

Meanwhile Brent is closing in on $126 & WTI closing in on $114. We're already past the 6pc of expenditure on energy that results in recessions in the US. I wonder if that means society's minimum EROEI is between 12.5 to 18 as the global estimate for when energy prices cause recessions is between 5.5pc to 8pc of GDP. Which puts us in a bind, given the EROEI of wind, solar, nuclear are in that region or slightly higher & subsidised by fossil fuels.

All in all, living on the edge really. One Greek restructuring, a few more dollars on the price of oil, a dirty bomb type explosion at Fukushima & we will see asset repricing across the board.

Politicians get elected or autocrats/technocrats stay in power on the basis of economic prosperity.

Prosperity comes from 'growth'

Because with rising productivity you need to employ fewer people, politicians & people like growth because the wealth pie expands and more people are employed who would otherwise be unemployed minus growth.

From production to manufacturing to distribution to storage to consumption to disposal requires natural resources & energy.

More growth means more waste, this waste can be measured by the levels of carbon in the atmosphere.

More waste means we're cutting ourselves down.

So growth in the long run will ensure our demise because we always need to use more & more & more with constant improvement & shifts in technology & productivity to be able to repay the debts to keep the system going but eventually you hit limits as infinite growth can't continue on a finite planet.

In the short run growth is vital to keep society from imploding. It's not like you need a total collapse to keep society from imploding. Just maybe a 25-30pc contraction really. And people will get pissed & go all fascist.

World oil supplies are depleting at the rate of 1 Iran every 11 months & 1 North Sea every 15 months. Eventually that sort of decline catches you hard at some point.

I'm very curious as to what drives I&S to presume there will be a hyperinflation "eventually." That is, they focus on an imminent deflation which will be so devastating that talking about hyperinflation is not relevant--that not until we have survived a long deflation will hyperinflation be relevant. And yet, I&S do indeed make a prediction that hyperinflation will probably follow. And so I would love to know how the mechanics of such a post-deflationary hyperinflation would work.

Image - organically grown chile de arbol- - - - - - - -Blogger scandia said... "Nor does she include peak everything and how that just might inhibit US capacity for technical innovation as means to balance the budget."

I agree absolutely, nothing stands in the way more than resource depletion. For example, governments are going absolutely Ape S--- trying to ensure access to supplies of rare earth elements. These elements are called rare because they are. China has by all means the greatest amount of these valuable materials and are, not to slowly, decreasing exports of them.

A lot of ink gets spilled on the subject of government screw ups, but to me it's like televised tornado weather reportage. Worthwhile knowledge of when to duck and cover … but in most other respects just morbid entertainment.

We have a certain government. It is an aspect of our environment but our individual relationship to it is like one yeast cell in a brewer's barrel.

The elite think themselves big and powerful because millions yield autonomy and donate their strength to higher ranks.

Groups create the illusion of power amplification … but it's really just concentration.

Humankind's rise was determined by this phenomenon as much as by intelligence. We are ultimately just creatures, no different essentially than any other and with the same basic requirements for life.

Hierarchical systems obscure ( but do not change ) the stark fact : We TAKE in order to live at all... and only so much is there for the taking.

Something has gone haywire hasn't it?

Our leaders are using the power we lend them to take everything in sight... for themselves alone.

Obviously they are insane, but were they born that way or did something about the system drive them to it?

The Elite 'act out' a delusional belief that some neuro-magic will make all of this TAKING extend their life or change its basic quality. As though it will make them experience in some different way things that we all experience identically, regardless of wealth or station. A beer tastes the same to rich or poor, and kisses identically sweet.

This makes people uncomfortable ( subconsciously for most, full consciously for an unfortunate few ), and so various tricks are employed to assuage the ever present guilt.

The most popular trick is to move victims so far away that they become invisible. Another is mutual reassurance of how deserving we are of our 'wealth.'

But the FAVORITE trick is to proclaim why the victims 'deserve' their degraded condition. They are primitive, stupid, evil, debased, liberal, conservative, misguided, criminal, heathen, barbaric, capitalist, communist, anarchist, etc. Whatever it takes, just so long as it hides that one has swiped ( and intends to go on swiping ) the other guys stuff... so that we'll taste beer differently, and the girls will kiss us better.

Now we are worried, and for good reason.

The same massive brain that enabled our astounding success as ripoff artists informs us that hierarchies are suicidal.

The cliff is within sight of all but the fiercest denialists.

Poor us. Maybe natural selection will get it right next time.

In the meantime, shouldn't we include in our Socio-Economic -Tornado-Report things we might do that are different than the game that created this impasse in the first place?

Or do we simply go on refining the art and science of stealing?

I see funnel clouds all around and the only advice I'm hearing amounts to, “ Stock up on stuff and try not to lose your money to greater thieves.”

To be completely blunt, I don't really give a good god damn about how to “preserve wealth” if all that comes down to is some tricky way to make some other poor bastard lose his stuff instead of me losing mine.

I want to hear some deep practical thinking about better ways of doing things.

There have been glimmers that this is not impossible.

I've heard, for example, that to the pre-invasion Inuit the measure of wealth was the number of one's friends.

I've heard that to some First Americans, it was sinful to rise above the conditions of the tribe. All must benefit, or none.

I've even heard, though this challenges belief, that there was this Jew one time who said people should should love their enemies as dearly as themselves.

In any case, its time to think outside of the box … before we get buried in it.

“While I may post again on this issue, the loss of such a large array of data is going to make work difficult for professionals across the energy, energy policy, environmental policy, and industrial and financial sectors.”.There Goes the Data: Major Cuts at EIA Washington -Gregor

Whatever solution(s) may be, they will likely function optimally at small scales. It seems that most of the problems facing humanity exhibit scale dependence and stagnate/degrade beyond a threshold range of scales.

The most reverend individuals of some of the the Haida tribes (North American West Coast Natives) were the ones who had given away the most material possessions. The antithesis of wealth appropriation. :)

At its core is a revaluation of property, impermanence, posterity (long time horizons), and interconnectedness. We must come to think of our world as a communion of subjects. A paradigm shift of epic proportions is required.

The cause of time is relativistic mass; wherefore Gravity is a recursive algorithm.

The cause of time is relativistic mass; therefore Gravity is the best of all possible recursive algorithms.

The cause of time is relativistic mass; therefore Gravity is the only possible recursive algorithm for optimally allocated utility of novelty.

The cause of time is relativistic mass [and the geometry of hierarchy is a function of Gravity]; therefore Gravity is the only possible recursive algorithm for any utility of novelty in a gravity over histories.

"..both extremes of inflation and deflation will lead us all to the same abyss thanks to the magic of credit default swaps combined with excessive bank leverage."

from Mr Frost"

"Fire and Ice

Some say the world will end in fire,Some say in ice.From what I've tasted of desireI hold with those who favor fire.But if it had to perish twice,I think I know enough of hateTo say that for destruction iceIs also greatAnd would suffice."_

agtefc said...If a paradigm shift is required it begs the question how this paradigm shift could possibly occur or be forced upon the masses.

The shift will occur in its own good time and it will be the masses that will force it upon the PTB. I think we can catch a glimpse of the process in what is happening in Libya, Syria, Yemen and elsewhere. There does seem to be a point beyond which people are willing to say, that's it we've had enough. Places like that never entirely got over being tribal and so it would be natural for them to be the first to return to that social form.

It will take our kind a good deal longer to get there. My recent rambling history of humankind since we started owning, empiring and nationalizing showed that we've been at it for several thousand years. It may take at least a few dozen years to undo that tendency.

The real question of ownership is this. Do you own the things, or do they own you? It seems to me that the correct answer is usually the latter. When things own you, they can require you to do things not necessarily in your best interest. Just like human masters.

In 30 years there will be a big opening for kids rhymes. The current generation is not learning the old ones because their parents won't let them just hang with their peers. I remember my grandmother reciting one from her childhood and being surprised when both my mother and I finished it with her. Not so likely anymore.

OTOH, this is open source. Ring Around the Rosie is 750 years old, and there are 500 million native speakers of English alive right now. Several billion people have had the chance to hack on the repertoire. Going big time is not easy.

Bigelow and VK - Your points are well taken. The EIA has disseminated crucial information for years.

The cutting of funding for EIA is not a question of economics. It is just one more attack by TPTB to prevent messages they do not like to reach public ears. The moth balling of a satellite to clarify the threat of global weather change by the Bush administration is another example.

When the satellites were launched under the Obama administration it was using launch vehicles with a relatively poor launch history. Indeed the insertion of these satellites into orbit was a failure.

Thus once again a cover up. Do not release any information that might have a bad effect on the status quo. Don't let anything happen that might block efforts to revitalize a failed economy.

Have yourself a glass (of a few) of Syrah and watch the following:BridesheadIf you fail to shed a whipser of sadness for the age of beauty that none of us ever experienced and for which we now leave forever, then I'm sorry to say your soul is cold as granite in January.

For it is indeed sad that we must bid adieu to this grand age of splendor and elegance. But goodbye we must say.

The age of dirt and dung and sadness is now nearly upon us. Only the memory of what once was remains.

Crunching away at numbers supplied by the Bureau of Lying Statistics (a department of the Ministry of Truth) may be a way to pass the time. It doesn't seem at all likely to yield any useful information.

@ Ric, the JMG post had meaning for me as in going to the desert to remember your name. 37 years ago I spent 3 months in the Sahara- a tough journey, almost killed me. I came back a stranger to my culture. I am lonely, have been lonely for a long time.

@Kimberley, I'll be waiting for the library doors to open to-day to get " Brideshead Revisited" Hope it is in the collection. Thanks for that tip!

...Bill Gates walks into a bar with maybe a hundred people in it. The bartender/owner calls out to him, "Glad to see you Bill. We are all, on the average, multimillionaires in my bar now."------------------------------------------ Mean, medium or mode? With such a skewed distribution the bartender should consider using the medium.

Yes, the very point the little story is meant to make. But the word "average" refers to the arithmetic mean when not further defined. And how often do the MSM use mean averages to mislead us when the median would be the correct type to use?

For a meaningful comparative analysis of consumer expenditures on necessities (to determine if affordability has increased or decreased), I would recommend you use a few different sources of data and try to control for as many variables as possible.

The BLS surveys you reference suffer from a lot of deficiencies. For example - it is a survey (the results of these are always influenced by various factors - inherent subjectivity, examiner bias, responder bias, etc.), it looks at pretax income (that doesn't really mean much for affordability, does it?), there's no statistical analysis to determine the significance of % differences given the relatively small sample size, it doesn't control for outlier data if the %s are mean averages (as El G mentioned), it doesn't take into account differences in welfare standards and benefits (food stamps, etc.), it only compares two very broad income categories (it would be better to look a narrower brackets).

There are probably a lot of other things that I can't think of now as well...

At the risk of being denigrated for actually discussing macroeconomics on this site, I found Jim Rickard's April 27 interview insightful in many respects. Be curious to hear your comments. One of many things he said that I found interesting was that a press conference violates every aspect of the Fed's internal culture, so one must ask why they chose to hold one. His reply was they have shot off all their bullets and the only thing left to them is to try to influence the herd with propaganda. Or put another way, if you can't dazzle them with your dance steps, then baffle them with your bullshit.

He also showed how superficial Tyler Durden's argument of Fed maturity income was by demonstrating how easy it would be for them to alter it to their liking through their buddies, the PD's.

Brideshead Revisited was extremely popular in the UK. Sebastian and Charles (the narrator) seemed to be having a homosexual relationship. Later, by chance, Charles is an officer and is posted to Brideshead - which has been desecrated by wartime soldiers.

Personally, I much prefer The Sword of Honour Trilogy. One of the best read on a military shambles (the retreat from Crete) that I have ever read. Also, one of the funniest books ever written - if you like satire. Tells you all about the lonely wives and what they get up to when hubby is away.

I mean Japan 10 year is yielding 1.21pc. You wouldn't think by looking at that, that Japan is facing a life threatening crisis. They are one earthquake, tsunami, cyclone or human error away from total catastrophe at Fukushima.

As it is their road map is unfeasible given the ineptitude shown so far.

Seriously, 1.21pc over 10 years. Students of financial history in the 23rd Century are going to laugh at the concept. (if our species is still around & civil to some extent).

And US 30 year treasuries at 4.41pc?!

Do we even know that 10 years from now a US might even exist? Certainly some of the states might be much better off going it on their own.

The markets have become an end to themselves, where countries are regularly sacrificed at the altar of the IMF. They were supposed to be a means for a reasonable standard of living & strong institutions such as the judiciary, education, the sciences & arts etc.

Yeah, inflation expectations. The fed definitely wants to keep those as high as they can for as long as they csn. Not because they are screwed without them, but because they know the expectations will soon reverse (contrary to what Rickards thinks), and they have a lot more leverage over the economy when more people (wealth) have been sucked into the Ponzi scheme before it implodes.

re: "optionality" of the Fed - I think it was clear, and fully expected (at least by many of us), that the Fed would talk a lot about its "dual mandate" and would address inflationary concerns, but leave the door wide open for further easing. But I don't think this was done by the Fed so that it had flexibility to choose various options in the future, but because it wanted to preemptively cover its own ass for the time when it inevitably chooses certain options.

I don't really see how a press conference is dangerous for the traditionally secretive Fed at this point in time. The questions were obviously vetted and perhaps there was even some outright manipulation beforehand. Either way, seems to me like it's an easy way for the Fed to diffuse some public frustration while simultaneously bending it over further for ease of penetration. I'd much rather have full disclosure of their accounts & records... fat chance, right (shouldn't the phrase be "skinny chance?").

@ Nassim, Evelyn Waugh is brand new to me! I just started watching Brideshead Revisited to-day and savouring the script, the sets, the insight into class, the performances etc...quite delicious! I will get to the The Sword of Honour Trilogy.I am a sucker for " honour ".

The huge "national security" is that Bin Laden is dead and we have the body. It is only really "huge" if it is part of a bigger story... and I'm betting that story does not involve us pulling out of Afghanistan anytime soon. We will, however, be on higher threat level alert for awhile, and not necessarily for no good reason.

The real Evelyn Waugh had some human failings and honour took second place to survival. His Wiki entry fails to mention that he was responsible for writing his commando unit's history/log - he was their intelligence officer. He wrote a false version of events.

They had orders to protect the retreat but they did not follow them and abandoned their gear and scrambled for the south coast of Crete - just like everyone else. Just ahead of the Germans.

Laycock and his brigade major, the novelist Evelyn Waugh, were able to escape by crashing through German lines in a tank. Most of the other men of the detachment and their comrades from the 20th were either killed or captured.

The percent of GDP that engenders a recession leading to a minimum EROEI for society is clever. If the system contracts below a certain threshold then that threshold is the minimum. I think I like like it.

But you have to bear in mind that it is only for our present society. Civilizations before us have existed on lower EROEIs and whatever follows our day in the sun will almost certainly run on a lower EROEI.

Jeez...I woke up to hear Obama on the radio, a rah,rah god bless america speech. Now I know why. Now I know the mission was " under my direction..." Not only is he unwilling to stop the war he is now a general commanding operations. I really can't stop shaking my head. Crazed crowds dancing in the streets sends a chill up my spine.The Cdn PM, Harper, is strutting his blood lust with pride on the airwaves as well. Will a war " victory " influence the vote to-day?

I find it amusing AE finally posts an anti-silver article. Thanks for warning us. Where were you to tell us to buy it for the last $30 rise? Everybody wants to call a top in silver and so far everybody has been wrong. Welcome to the crowd AE